Wiki Selling TSLA Options - Be the House

[Tslynk67]

My three $1005's all got rebought for $0.01 at 21:59 (local time)

OK, the big take-away from this is to take a strike 1 or 2 steps above the call-wall. There's always a fight at that price-point, and it can land either way, so for peace-of-mind, take a few $$ less in premium and "stay safe".

On the other hand, you've a pile of $$ to play with - it's not a given that the SP goes up next week...

 

[Dharma]

That was good sports indeed. Glad to see those of use with ~1000 CC's be alright in the end. It is good to have MM on our side.

@adiggs I tried a similar experiment at the close with my $1000 calls. Was also surprised how much extrinsic value it cost to buy back the calls. I bought back the $1000 calls at 3:57 pm with a limit order of $0.30. The ask was around $0.70 when I placed the order. It was a test to see if anyone would bite, if it failed I got my fingers ready for a market order. Fortunately it filled.

I'm letting the $1010 calls ride. I believe that's far enough OTM that they won't be exercised.

 

[adiggs]

That was good sports indeed. Glad to see those of use with ~1000 CC's be alright in the end. It is good to have MM on our side.

@adiggs I tried a similar experiment at the close with my $1000 calls. Was also surprised how much extrinsic value it cost to buy back the calls. I bought back the $1000 calls at 3:57 pm with a limit order of $0.30. The ask was around $0.70 when I placed the order. It was a test to see if anyone would bite, if it failed I got my fingers ready for a market order. Fortunately it filled.

I'm letting the $1010 calls ride. I believe that's far enough OTM that they won't be exercised.

I originally had a .50 limit order (much earlier in the day). I moved it up to 1.00 as I started worrying about an early assignment, which I really didn't want (some of the shares would have triggered tax consequences that I'd rather avoid - I'm going to have enough tax consequences from the other trading activities this year).


3 minutes to go is way more gutsy than me!


EDIT: And if I could go to Vegas and bet with the casino, that's how I'd do it. I like having the casino operators on my side as well.

 

[Right_Said_Fred]

And $1 time premium with minutes to go was a real surprise for me.

The last few weeks we saw a run up at the end of Friday’s trading, in anticipation of a big Monday. Could it be that the market was anticipating another one of those late run ups, which kept the call premiums up until the very end of the trading day?

That run up didn’t materialize this time.

I’m happy with my monthly positions so far. I couldn’t do the intensive weekly or even daily trading on a knife’s edge that some of you engage in. It would require my full attention, which is not always possible.

 

[adiggs]

Who'd'a thought that there is actually an internationally agreed date format?
ISO 8601 — Date and time format

Good thing they got the standard right

 

[adiggs]

I’m happy with my monthly positions so far. I couldn’t do the intensive weekly or even daily trading on a knife’s edge that some of you engage in. It would require my full attention, which is not always possible.

I like to watch @Lycanthrope dance the knife edge from somewhere over in the crowd. Maybe in the front rank of the crowd

Today has definitely been an outlier for me. Easily the closest to the edge by a huge margin over a 3 month window of selling options.

The primary vector in which today has been an outlier wasn't waiting until nearly close of trading to close the position (though that's also an outlier).

The primary vector was that the option needed all 15 days it was open before it finally became profitable. 14 days in the red, with most of them >100% to the downside, and they finish with me keeping 87% of the premium. That's not at all the way I like these to progress, but it does increase my already high confidence in the power of time decay.

 

[juanmedina]

Lol and I sold my first covered call ever with a $1150 strike

I collected my $200 bucks . Depending on what happens Monday I will try to sell another one.

 

[adiggs]

I collected my $200 bucks . Depending on what happens Monday I will try to sell another one.

Great place to start. Remember that the risk on covered calls is on a big move that lands the shares far ITM. So in the case of that 1150 strike call, ending up at say 1300. You collect your $2 premium, and miss out on an extra $148 move in the stock price.

Which is a really good reason to be far OTM and short expiration. Though that isn't the only way to play.


And the best part - you've learned a little bit by doing, and you got paid to learn. I like being paid to learn.


If it helps, anytime I start thinking that the $ is too small to be worth the energy, I remind myself that it doesn't take all that much to earn 1% in a month. And most of us would (figuratively) kill for a 12% annual dividend (1% / month).

 

[juanmedina]

Great place to start. Remember that the risk on covered calls is on a big move that lands the shares far ITM. So in the case of that 1150 strike call, ending up at say 1300. You collect your $2 premium, and miss out on an extra $148 move in the stock price.

Which is a really good reason to be far OTM and short expiration. Though that isn't the only way to play.


And the best part - you've learned a little bit by doing, and you got paid to learn. I like being paid to learn.


If it helps, anytime I start thinking that the $ is too small to be worth the energy, I remind myself that it doesn't take all that much to earn 1% in a month. And most of us would (figuratively) kill for a 12% annual dividend (1% / month).

Thanks, I agree I would happy with 1% a month. I am trading in my IRA and I don't have much cash in there and it's already maxed out for 2020. My plan is to try to collect about 10,000 in premium (that would cover me on a 10% mistake at the current SP) and after that start selling covered calls with more aggressive strikes.

 

[Chenkers]

I sold my first puts last night (local time). A 26/6 985 for $22 and a 2/7 930 for $23 (different accounts). Not the greatest premiums but I'm happy to have made a start.

I didn't have enough cash to sell a third put at decent premium so bought 85 shares at $1002 (had to get some sleep so missed the dip). I have more cash coming into that account next week, so I plan to sell the shares on a rise and use the combined cash to sell a third put.

 

[Tslynk67]

I collected my $200 bucks . Depending on what happens Monday I will try to sell another one.

Way to go! I lost money for months with weekly options, mostly because I was buying them... was only when some LEAPS went big that I acquired the capital to start selling them and then it's a completely different ball-game.

 

[Right_Said_Fred]

Way to go! I lost money for months with weekly options, mostly because I was buying them... was only when some LEAPS went big that I acquired the capital to start selling them and then it's a completely different ball-game.

it’s my impression that many option buyers lose money and that selling options is where the money is made (because time is your friend). That’s why I sometimes wonder who the poor souls are that I’m selling to. Unless ofcourse it’s a market maker who hedges the transaction.

 

[adiggs]

it’s my impression that many option buyers lose money and that selling options is where the money is made (because time is your friend). That’s why I sometimes wonder who the poor souls are that I’m selling to. Unless ofcourse it’s a market maker who hedges the transaction.

I wonder the same about option buyers. We don't call it max pain for nothing - the overwhelming majority of options are sold by market makers. Gee - I wonder why that is . I also know that there are times when option purchases are badly mispriced, leading to an advantageous time to buy.

The challenge with option selling is that it's a high volume / small wins type of strategy. I'm liking that strategy, but I'm also cognizant that a $100 move against me (and beyond my strikes) might be enough to wipe out all of my gains to-date; at least on paper.

I'm especially aware and worried about it to the upside - my shares get called away in front of a breakout and I miss out on most of it would be .. dramatically bad.


The casino makes money by way of the law of large numbers. They know that with enough plays at a constant dollar amount, the likelihood that they won't come out ahead becomes very low. But that means they need large numbers of plays; they can't reliably do small numbers of large plays as they might come out ahead, and they might come out very far behind.

Similar dynamic here. For me, I have the added difficulty that my own investing mentality fits badly with purchasing options as I think like a buy and holder instead of an in with a hypothesis, and out when it's resolved either way. But that same mentality fits quite well with selling options - hold to expiration for maximum win!


Long winded way of saying - every strategy / approach has up sides and down sides. Remain cognizant of those downsides, and remember that when TSLA moves, it MOVES. And that this flattish / sideways trading, or slow and steady trading in some direction, is an ideal environment for selling strangles as many of us are doing. There are other environments where other strategies work well (like the low volatility, really cheap long dated calls last fall), and strangles are bad. Like last fall / early this year when TSLA went from the 300s to the 900s in a short time (I imagine it was difficult - I didn't know any of this stuff back then ).

 

[adiggs]

I sold my first puts last night (local time). A 26/6 985 for $22 and a 2/7 930 for $23 (different accounts). Not the greatest premiums but I'm happy to have made a start.

I didn't have enough cash to sell a third put at decent premium so bought 85 shares at $1002 (had to get some sleep so missed the dip). I have more cash coming into that account next week, so I plan to sell the shares on a rise and use the combined cash to sell a third put.

And those premiums look pretty good to me - my conservative trades down at the .10 or .15 delta tend to bring in $8-10 dollar premiums. My aggressive trades up at the .30 delta get into those $20 premiums.

One thing I am aiming for is to make my trading more mechanistic, and less gut feel. I use delta for that (primarily) as it provides me a measure of risk that provides pretty consistent results. That might not work for you, but it's at least something to consider. I also use days to expiration to manage risk as well. Delta adjusts for DTE pretty wellll, but I also worry about how much TSLA can move in a short time and I don't like to be exposed to long durations. I guess this could be a form of adjusting for mispriced options (the misplacing being MHO).


I felt back in March when I started, and still to this day, that the education really begins once you've got money involved. I at least know that's how it's worked for me - I know a lot more about managing risk, managing open positions, how long option positions really stay open most of the time, and a better feel for how far (DTE) works well with my risk tolerance / sleep-at-night metric.

One reason I started this thread was an excuse to write down stuff I've been learning - for others to hopefully learn from, but mostly to crystallize my own learnings.

 

[Tslynk67]

Buying short term calls is pure gambling, LEAPS on the other hand is more akin to buying stock.

 

[troyhouse]

Puts loves sideways action, even with SP down, sold puts are up like 40%.

 

[adiggs]

Puts loves sideways action, even with SP down, sold puts are up like 40%.

Give me some more of that sideways action! Well, until we break out big time to the upside


I closed 1 of my 6/26 put positions (the 935) for 63% (opened on Friday, so ~1 trading day). My thinking here is that it was only a 1 week option anyway, it's hard to not take a 63% resolution in 1 day, and I've moved it out to the 925 7/2 put (13.50 premium).

My thinking on the new position - that's the .21 delta. I'm mentally thinking of that as my "conservative" position for 7/2 - I also have a 945 position for that week that is down to a .28 delta (from .30). So at least on the put side, my "conservative" positions are creeping up. I like the better premium, but I'm taking on increasing levels of risk on the put side.


It's occurred to me that the steadily increasing risk on the put side might be in partial compensation for my plan to avoid covered call sales - at least for today (and possibly months). One idea on that side I have is to wait for tomorrow or Wednesday and then sell calls for this Friday. It seems like when I've sold calls recently, I suffer through a window of increasing option premiums, before they start decaying at the end of the week. And besides, I'm thinking we'll see an upside breakout and I don't want to be in front of that, so any covered calls will be really short and really far OTM. I'm playing this by ear, so we'll all find out later what I decide to do

 

[adiggs]

I think we're seeing a drop in volatility today. At this moment stock is down ~$3 while put option premiums on my positions are down ~$8. Those premiums should be flat to up with the stock down.

No complaints here on how this is helping the current batch of options, but with short dated options, the next batch will be sold into a decreased volatility environment (assuming that I'm reading things correctly). I guess one consequence if options premiums aren't looking as good for the next positions is to sit on these longer and squeak out a bit more of the premium.

 

[pz1975]

I think we're seeing a drop in volatility today. At this moment stock is down ~$3 while put option premiums on my positions are down ~$8. Those premiums should be flat to up with the stock down.

No complaints here on how this is helping the current batch of options, but with short dated options, the next batch will be sold into a decreased volatility environment (assuming that I'm reading things correctly). I guess one consequence if options premiums aren't looking as good for the next positions is to sit on these longer and squeak out a bit more of the premium.

I noticed this too today that option prices have gone down compared to the last few weeks. Once I saw there want going to be a big Monday move I went shopping to sell some more options but didn’t find much that was worth it. I sold 10 $1,300 calls for $0.31 each - seems like a sure thing to expire worthless.

The best thing about selling options is you don’t have to be right to make money. I was expecting a breakout today and sold some $990 puts Friday. Even though I was “wrong” they are already 40% profit.

Buying (short-term) options you have to be right to not lose money.

 

[adiggs]

The best thing about selling options is you don’t have to be right to make money

So very true. The 1000 calls I sold that expired on Friday were losers for 14 out of 15 days. On that 15th day though, the only one that counted, they ended with me keeping 83% of the premium (with some added stress relative to the norm).

The options I've bought never worked like that, and I certainly never had confidence that the final day would turn them around!